Recommendations for how to effectively manage a product group in a professional services organization

In today’s tech services economy (especially in the US Federal government) Systems Integrators / Contractors have to bring additional value (frameworks; code; subject matter expertise) to the customer to win. It is not enough anymore to be a professional services company especially with the onset of the “Cloud” services economy. Because of this services companies are buying up tech companies to add to their qualifications. However, services companies need to be very careful how they orchestrate success for both the services business and the new product business.

Here are a few recommendations:

#1 Don’t mix the P&Ls below the CXO level. Resources need to stay on one side of the p&l or the other.

What happens if you mix?

  1. Every product sales is a different variation / customization of the product and there is never a version 1,2,3,4 etc..
  2. Profit on products hide sins of the services business and Revenue of the services business hide sins of the product business
  3. You won’t do either well as you will be trying to take services profit to do long term R&D for the product or you will be taking product people and making them billable
  4. Services will usually be a bigger part of the company with more executives. The products may be buried in the organization and then the exec bureaucracy start ordering the product guys to do x, y and z and then there is all out chaos.
    1. The Services arm will always push the product arm to do more than the product is designed to do at its current release… For example, Microsoft and Oracle are always asked to add features and functions to their products by their customers and they add those requests to the list of thousands of others and prioritize the next releases features based on the size of the market for those features. But a services company can fall into the trap of pushing 1 clients features above all others because that is the engagement they are currently billing.
    2. In today’s LPTA (Lowest Price Technically Acceptable) contracting environment Service organizations are driven to constantly lower their indirect costs in order to bid the lowest hourly labor rate possible. This is in direct conflict with the need for a Products business to invest current year dollars in IR&D (increasing current year Wrap rates), in order to gain future revenue. This tension usually results in the IR&D budget being trimmed for the sake of a lower wrap rate, and product development suffering.
  5. Services ‘business/suit’ culture doesn’t map to product casual culture. You won’t get the best talent

#2 Staff your product business appropriately–You need a product manager, dedicated product team, dedicated product marketing, channel support and sales tech/business infrastructure. You need to run the product group as a company with an R&D investment budget and P&L expectations.

#3 Create a reseller contract between the Services groups and the Product groups.   This enables your Services BD to fully discount products at an agreed to level.

#4 Empower your product business to work with other services firms and not exclusively with your services groups.   Your Services BD will always be able to reach in and pull the product sales into deals easier than your competition.

#5 Get everyone in the products business a copy of Lean Startup, Crossing the Chasm, Blue Ocean Strategy, Rework… Get everyone in the services business a copy of Managing the Professional Services Firm.

 

 

 

Google Glass–will this platform be ubiquitous?

I attended a Google Glass Meetup in DC last week and was very impressed.  I’ve not seen this much interest by developers in a platform since the launch of the iPhone SDK in Feb 2008.   I learned early on when I was working at MSFT that a platform will be successful if it is viral with developers—something I believe MSFT has lost over the last 10 years (possibly more on that in a future blog).  This new Glass platform already seems to be becoming viral.  Can they continue to grow momentum?

I personally don’t think that Glass (or competitors to Glass) will be as big a market as the smart phone but I do think it will be substantial.  I say this because Glass in many ways is really an accessory to a smartphone much like a Jambox or Fitbit. That being said, it is a lot more functional because apps will be designed/developed for it exclusively.

First, some facts I learned at the event:

  • There are ~8,000 units out there and the original units were $1,500 each.  This price needs to go down if these are to become ubiquitous…
  • The device requires a phone running Android 4.0.4 and higher (connected via Bluetooth).  They are going to have to support iPhone but no mention at event.  I did read this article that mentions there will be some support.  Google will have to balance the need to push Android with the fact that iPhone is a huge market.  It will be fun to watch how well they walk this line…
  • Display resolution is 640×360 and it contains a 5-megapixel camera, capable of 720p video recording
  • Ships with Wi-Fi 802.11b/g and Bluetooth
  • 16GB storage (12 GB available) and 682MB RAM
  • Bone conduction transducer for sound—yea that sounds painful…
  • The apps don’t run on the glasses, they are essentially HTML pages (they call them cards) that are hosted at Google and called via API (there is no SDK).   I would think that this would make it very difficult to build the types of games that smart phone users are accustomed to…   Makes me wonder—without a large number of games, what drives the initial momentum? However, I’ve come to the conclusion that there is enough momentum via smartphone users and productivity apps, so it won’t matter.   More here.
  • New York Times already has an app.  I think they are one of the only 3rd party apps right now.    I heard there were others from Path, Skitch and Evernote but did not see them.  I’m sure there are many others…
  • There is not a marketplace for apps yet but that is coming and Google has not announced a way to monetize apps… this will be key for success…
  • Great companies are already on board developing such as http://dsky9.com who presented at the event
  • The new brand is going to be “GlassXXXX” like apple has “iXXXX”.  So they talked about an app called GlassFit, like iFit…
  • This is a platform that will require people to learn minimalist design

Some of what I was thinking about while I watched the demo:   I’m an engineer at heart so I like to think of things within frameworks.   Let’s first look at why smartphones are successful and eating away at the laptop/PC market share—I created what I’ve called the value pyramid (see graphic below).  Think about laptops versus smart phones and tablets within this framework; I believe laptops/PCs are losing market share because a majority of what has tied people to a desk the last 20 years can now be done via a smart phone / tablet.  Laptops are still very important devices for collaboration and creation but not for all the other layers of the pyramid.  When thinking about a product like Google Glass against such a pyramid, I start to wonder if the device will make the functions of the lower levels of the pyramid easier or will it start to effectively erode the collaboration/creation level.  My take is that the latter will be very hard to do given limited user experience.   So Glass must make the lower levels of the pyramid even more productive for a user in order for the device to be become ubiquitous.

pyramid

At first I want to compare using the Glass experience to what I do on my smartphone… When does it make more sense to use Glass versus my smartphone?

Search:  I’m the kind of person that is always asking Google who, what, when and where questions and if I could do that easily without pulling out my phone it would be worth the investment (I have an 11 year old and he asks me a ton of questions).  It is also clear to me that having the knowledge of what is around me is interesting as well and can be leveraged.

Consume: I’m not sure about this one.  I think I’d use the device to consume content if I owned it but I’m not sure I’d invest in the device to get my New York Times.  Am I wrong?

Gather: Again, I’d probably use the device for taking pictures/videos but I’m not sure I’d invest in the device to gain this experience—maybe I would if I were in the media business but not sure…

Interact: It’s clear that if Glass can absorb my surroundings and provide me data that makes my golf game more accurate (check out http://icaddy.com ), my running experience more successful or lowers the risks associated with me piloting an airplane etc. it would be adopted by those that care about such things.  I’m not positive I’d use the device for sending  TXT’s or emails, but I’m open to it if the experience is better—for example, will it read my message to me and can I speak and the device easily sends the message in whatever language I want?  Even better, can it very effectively allow me to communicate with someone in a language I do not know?  Even better—can it help me do a job I’m not qualified to do—like build a Cobra?   If so, then yes, I’d invest if it was super easy (again, needs great design).  On the point of email, I do think that many people like to be absorbed in their phone and tune out to the rest of the world.  Will they invest in Glass for just the email/TXT experience? I doubt it…

Transact: I doubt I’d use the device to do a bank transaction or to sell stock or to buy something on Amazon, but I’m open….

So do I think the device will be successful? Yes! Why? Because just the baseline Search is a value add worth paying for.  Do I think it will be ubiquitous? Maybe.  I think that comes down to Glass’s ability to help people interact with their environment.  If it makes me a better golfer there is no stopping its growth 🙂 .

Many others in the industry think this is going to be huge as well–IHS, a forecasting firm, estimates that shipments of smart glasses, led by Google Glass, could be as high as 6.6 million in three years <see here> and Google Ventures Launched a Glass Collective With Andreessen, Kleiner Perkins to fund Google Glass startups—all great signs that this is a new / important platform.

Only time will tell, but I’m ALL IN…

Are you a member of the Common Sense party?

First of all, I love this country and all the opportunity it has provided me.   As a father, I now worry about the future and what kind of nation my son (and hopefully his grandchildren) will live and I want him to have all the same opportunities I have had over the years.    For that reason my vote means more to me this year than any other year I can remember.

Before I decided how I was going to cast my vote I thought a lot about what I wanted in my President and I’m writing those ideals down so I have a reference to come back to in 4 years.

Yea, and I had the Rolling Stones playing ‘You Can’t Always Get What You Want’ in the background. 🙂

I want a President that believes a high national debt is bad and has an actionable strategy.   Our nation is living on a credit card and those debts must be paid back with interest eventually.   Right now we owe 42K for every person in the country.  That is significant.  Anyone that owns a credit card knows that eventually you can only afford to pay the interest and not the principal.

I want a President that believes Transparency is a priority.  I thought this article was a great analysis of the last 4 years.

I want the truth.   I don’t want ‘spin’.  I don’t want a President that distorts the truth for their party’s benefit.   The examples are endless and you can get a good glimpse of them at http://www.politifact.com.

I want a President that owns a problem and does not blame the other party….

I want a President that leads with vision, mission, strategy, objectives and results and not with fear. However I do want a President that believes that Intelligence and National Defense are a top priority.

I want a President that commits to a bipartisan approach.  The Congressional Quarterly who has tracked partisan votes since 1953, and its tallies show extreme levels of partisanship over the last 4 years.  I want this to change…  I want a President that can enable the American people to help them drive a bi-partisan agenda.   Something more like what Lyndon B. Johnson did with the civil rights bill when it was being blocked by the chairman of the House Rules Committee he reminded the nation that the GOP was the “Party of Lincoln” and brought huge numbers of people in to Washington to speak to congress.   This resulted in the 1964 Civil Rights Act.   I don’t want to hear “where I can work with them (Republicans), I will. Where they don’t want to compromise, I’ll work around them.”—see CNN.

I don’t want a President to push through their party’s agenda on the back of a crisis.   I was very disappointed when I heard Rahm Emanuel say “You never want a serious crisis to go to waste”.   The comment just oozed with ‘we can slip a lot of our agenda through by piggy backing on this crisis’.

I want a President that believes government policy (law) is only necessary if a free market outcome is not fair (examples: providing healthcare to those that cannot afford it).  I don’t believe policy is necessary where the market works such as healthcare for those that can afford it.     I just don’t believe a government agency can manage healthcare as good as a commercial company can…  Many others can be found at Citizens against Government Waste and at The Cato Institutes ‘downsizing government’ site.

I want a President that believes government policy (law) should deal with Causes and not Symptoms (example: taking an aspirin treats the symptom of a fever, but the fever is usually caused by something more serious).   The “Cash for Clunkers” program was a great example of a policy directed toward a symptom versus the cause.  Not sure that was worth the 3 Billion we paid for it…  the 862 Billion American Recovery and Reinvestment Act of 2009 (Stimulus) was filled with policy that was dealing with symptoms (Coburn/McCain documented much of this in “Summertime Blues”).

I want a President that believes the US Tax collection system should be consistent (more in line with a flat tax).   People that earn more money should pay more in tax (not a higher % but the same as everyone else). The current system is antiquated and needs attention.  Taxes basically redistribute cash from those that earned the cash to those that need it more, as well as, pay for our national defense.  We all need to be paying the same rate.

I want a President that believes the size of the government should be limited based on a % of GDP.

I want a President that has a plan to work to be the best at k-12 education and continue to have the best colleges and universities in the world.

I want a President that believes we need to allow those people educated in our country to stay in our country to help our countries companies be successful. See here for more info.

I want a President that believes we need to make the US a great place to build a company.   There needs to be emphasis placed on corporate tax rates compared to other countries and fixing loopholes that allow large companies to pay little tax.   Startup America was a good program but that is not where the growth is in helping drive jobs.  The focus needs to be on middle market companies– The middle market contributes approximately $3.84 trillion to the U.S. private sector GDP.

I want a President that is against new legislation from congress filled with pork barrel spending.   Here is a list for 2012.

I want a President that is not going to drive a broad social agenda when we have so many other issues to prioritize at the Federal level.   Let the states deal with gay marriage and gun control.   I want a President that will choose a Supreme Court Justice that is balanced and not too liberal or conservative.

I am not a Republican or Democrat.  I’m a member of the ‘Common Sense’ party.

To Capitalize or Expense R&D

If you run a startup that does software R&D you will eventually be engaged in a discussion about capitalizing or expensing research and development costs.   Here are a few good reads.  If you see others with differing options please send them my way.

http://www.anderson.ucla.edu/faculty/david.aboody/software_AL.pdf

http://raw.rutgers.edu/docs/intangibles/Papers/In-process%20RDto%20capit.pdf

http://www.columbia.edu/~dn75/On%20the%20Informational%20Usefulness%20of%20RD%20Capitalization%20and%20Amortization.pdf

http://www.nysscpa.org/cpajournal/2003/0703/dept/d074603.htm

Strategic Planning… Is it worth it?

The 37 Signals guys don’t think so–They say “Planning is Guessing”.   Check out their book “Rework”– I’ve used concepts from the book in many talks, conversations and business meetings and it’s been a wonderful tool.

Don’t get me wrong– I love the book, but my take is that there is a risk that the “Planning is Guessing” proverb can be taken out of context and used to justify a lack of critical thinking on a concept or even a business.

I’ve personally always found it valuable to go through the following exercise at least once a quarter:

Try using this model the next time you get stuck…

 

Professional Services – The first few stages of growth…

I was on a panel last night at a MoDevDC event (this Meetup is a group of amazing DC Metro entrepreneurs focused on the mobile applications space).  Many of the people in the audience were either on contracts as 1099 consultants or they were building mobile applications with the hope of building a sustainable company.   A topic came up during the panel about the different stages of growth an entrepreneur can expect as they grow their business.   I raised the point that the stages of growth are different for a services business than they are for a software business.  I also raised the point that running a company with both product and services can be complex as well.

There is a ton out there on the stages of growth a product entrepreneur goes through—just read one of the following and you will find all you will need:

If you are building a Product + Services company there is also a great book by the 37 Signals team called “Rework”.  However, if you are a one person shop and thinking about building a professional services technology consulting business I found that there is very little for a startup founder to read so I thought I would detail just a few thoughts below from the panel discussion on those stages.  Hopefully we can build on this as time goes on…

So here goes…

The Indie Stage…
You are en extremely talented programmer… company’s hire you on a 1099 basis to get the job done in a high quality way…   they pay you a high rate for your talents… you are a mercenary of sorts.

Your income could be in the range of $150k to $200 US depending on your rate and the number of hours you work (your utilization).  For example, if you bill $125 an hour and work the standard 1410 hours per year you can make ~$176,250 a year before taxes.  Not bad.  (Calculated as: 260 work days (52 weeks in a year * 5), minus 10 days unpaid vacation, 5 unpaid sick days and 10 unpaid holidays that leaves roughly 235 maximum billable days and hopefully you will never be under 75% utilized for a minimum of 176.25 billable days or 1410 billable hours.  At an average bill rate of $125 per hour one person is $176,250 in revenue.)

Your overhead is also minimal.   Get an LLC or S-Corp setup– Use a company like Legal Zoom to easily set it all up for a low cost…. Open a company bank account (Ensure they do ACH transactions)–  PNC has a great program for small businesses however a local bank may be a better choice once you start needing a line of credit.   Get your own domain and invest your time in free tools such as Google Apps

The dip your toe in stage…
The next stage many Indie services professionals go through is expanding their current contracts by hiring other 1099’s for $75/hr and billing them out at $125+/hr.

  • Income

You: ~$176,250
Adding additional people to projects:

revenue  =  $176,250

cost at $75/hr * 1410 hours/yr = $105,750

Net $70,500 per

  • Overhead (Your goal at this stage is to keep overhead as low as possible and work out of your homes and coffee shops)

Trademark the company name
Start investing in tools such as Basecamp
Get a good part time Quickbooks accountant ($500/month)
Invest in a SaaS Time Keeping system that integrates into Quickbooks
Get a good lawyer with standard professional services contracts
Allocate some weekend time to:

Build your bid / scoping methodology

Understanding the P&L – Score.org and SBA.gov are great resources

Building some marketing decks & PDFs that outline your company’s capabilities, case studies and differentiators

MAKE YOUR CUSTOMERS HAPPY!

The Management & Overhead Stage (A giant leap of faith)
So you worked your tail off and billed 100% of your time last year while still somehow hiring  5 1099’s and put $250,000+ ($70,500*5 minus taxes and hiccups) in the bank and you want to use that to scale.   This will by far be one of the hardest stages to get your new company through… It’s called the “Management” Stage because most of your work will require a lot of YOUR great managerial skills and a little leadership.    It’s call the “Overhead” Stage because this is the stage where you will have to invest money to make money—as well as take on personal risk (Line of Credit).

  • Obviously this is a stage where Profit and Loss management are key….   Get to know the “70, 20, 10 Rule”.  Your P&L should always balance out to a 70% maximum Cost of Goods Sold, a 20% maximum overhead and a 10% minimum profitability.
  • This is the stage when you go from billing yourself out to managing a team full time (you are overhead!)
  • This is the stage where you can begin to craft the company’s values (hint: Integrity must be at the top for a professional services firm—it better be true or you are in the wrong business).  You should also take a stab at a company Vision, Mission, Goals, and Objectives & Strategy.
  • This is the stage where you turn your 1099’s into W2s… (There are laws)
  • At this stage YOU are the sales person.   This is the stage where you have to determine what type of customer you want—not all customers are good customers… What size of deal is sustainable?  What is a good project?   It can’t cost you three months of sales calls and a week’s worth of someone’s time writing an RFP response to get a $25k gig.
  • This is the stage where YOU have to build out and document all of your companies Quality Assurance, Design, Project Management processes and methodologies—Why? –because you will be producing a low grade product inefficiently without them, and your customers are going to ask to see them…
  • Income

10 people is $1,762,500 in revenue

260 work days (52 weeks in a year * 5)
Minus 10 days paid vacation
Minus 5 sick days
Minus 10 federal holidays

235 billable days at 75% utilization = 176.25 billable days or 1410 billable hours
At an average bill rate of $125 per hour one person is $176,250 in revenue

Cost of Goods (62.4%)

$1,100,000 – Your consultants probably get paid roughly $110,000 per year
Overhead ($400,800 or 22.7%)
$176,250 – You
$    2,000 – Insurance (Workman’s comp, Liability, Errors and Emissions)
$ 39,600 – Benefits ($300 per employee per month)

Consider starting a relationship with a PEO (Administaff or Trinet)

$  6,000 – Tools: Email, Highrise CRM, Unfuddle ($500/month all up)
$ 12,000 – Marketing ($1,000 per month)
$ 12,000 – Computers for your staff (12 * $1000 = $12,000 or ~$1,100 per month on a lease)
$  5,000 – Line of credit ($5,000 enrollment fees and a lot of personal liability)
$ 88,000- Payroll Expenses (Salary * .08)
$ 60,000 – Rent

Net: $261,650 (14.8%) — Wow, not much better than last year and it was a great deal harder… but this year is going to allow you to successfully scale for many years to come…

Grow the contracts… Grow the people… Increase the bank account… Increase your Line of Credit…  MAKE YOUR CUSTOMERS HAPPY!

The Stable Growth “Leadership” Stage

This is the stage where your revenues and net income allow you to invest in more overhead.   You begin to fill out an organization structure.   This stage is referred to as the “Leadership” stage because you will have to grow leaders that you empower to run major portions of your company.
This is the stage where you begin to offer “solutions” with prebuilt intellectual property (IP) so make sure you write your contracts in a way that you at minimum ‘share’ ownership in the IP.
I cannot write much more about this stage and those beyond that has not already been well documented in detail by David in the book at this link http://davidmaister.com/books.mtpsf/ .

How tech companies behave depends on where they sit on a value chain

Lately I’ve been working with a number of small technology companies all of which have niche vertical solutions.  The common denominator across each of the companies is that they all are struggling with how they should behave in order to scale to the next level of growth.

As I work with each of these companies I’m going to document here the learning’s and try to find a framework that will provide others running similar companies value.

The framework I’m starting with is one of a value chain.   Here is how I am currently thinking about categorization and behavior in regards to where a company falls in the technology value chain.

Please let me know what you think…

In today’s world of Enterprise Computing motivation and behavior of companies is different depending on where they sit on the Value Chain?

Over the last 20 years I’ve had the opportunity to spend a great deal of time with many technology companies (Systems Integrators, ISV’s, OEM’s, Resellers, Training Providers and Hosting Providers) large and small and I’ve often wondered why many act as they do.

One way that has helped me to understand these motivations was to put companies on a value chain.

If chip manufacturers are on the bottom, right above the chips are the desktop and server hardware providers that use those chips… Right above the hardware providers you will find the platform providers like Microsoft with the operating system at the very bottom of that stack.

Then there is a hard line of demarcation on this value chain where IT value ends and business value begins.   Unfortunately, the traditional platform product vendors, not at all unlike “dial-tone” in the telecommunications industry, are on the IT value side of that equation.  Hence, most of their sales are targeted to the IT directors in the CIO’s office.

On that line demarcating where IT value ends and business value starts you will find IP that is built on, and requires, that platform dial-tone.   These are the typical “management” applications:

  • Supply Chain Management
  • Enterprise Content Management
  • Identity Management
  • Customer Relationship Management (CRM)
  • Enterprise Resource Planning and Management (ERP)
  • Document Management
  • Records Management
  • Knowledge Management
  • Asset Management
  • Forms Management
  • Systems Management

Platform providers typically don’t produce much IP in this area, but they enable other companies to build on their platform.

It is this very area where software as a services (SaaS) has had the largest impact.  Hosted CRM, ERP, Content Management and other services have become a reality and customers have re-evaluated the way they think about investing in technology.

Next on the value chain above the horizontal business rules are the vertical business rules.  These are applications that run companies/agencies/department/institutions business.   These vertical business rules are the solutions that customers invest in to solve their business problems.

The companies that sell at this level of the value chain have a deep understanding of the business problems as well as business process reengineering.  These companies are considered “Thought Leaders” and are companies such as Systems Integrators (examples: IBM Global Services, Northrop Grumman, Lockheed Martin and Accenture) and vertical ISVs (example: Curam Software).

Customers want to “partner” with companies at this level that understand their business problems and provide “solutions;” any company not fitting this profile is just another “vendor” selling commodities.   This can put the vendors below the vertical providers at a competitive disadvantage right from the beginning because some of the most important horizontal, platform and hardware decisions will be made by these vertical solution providers.

Companies may indeed sell across multiple levels of this value chain but where they are positioned on it depends on where they make the majority of their revenues.  For example, Microsoft still makes a majority of its revenues from Operating Systems and Office software.  They do have horizontal intellectual property (IP) such as CRM and ERP and they also have vertical software such as HealthVault but Microsoft is primarily a platform IP provider.

Cost of Sale

Another interesting element of the Enterprise Computing Value Chain is that the farther up the stack your company’s products are the more expense it takes to make a dollar.

Comparing IBM, Lockheed Martin, SAP and Microsoft you will see that IBM and Lockheed Martin both make a majority of their revenue from solutions consulting at the vertical IP level, SAP is primarily a horizontal IP company, and Microsoft is a platform provider.

IBM and Lockheed Martin are primarily people centric companies filled with thousands of consultants.   Microsoft on the other hand primarily has software developers building the next generation platform software  This if fundamentally why platform providers struggle–Microsoft’s customers would love to have them solve their business problems but their shareholders like the high profit margins and low expense.   To make the transition to a company that solves business problems they would have to increase their consulting force, deal with longer sales cycles, focus on areas such as business process re-engineering and build vertical IP such as 911 solutions for state government and student information management systems for schools.

You might say, revenue is revenue… but it’s not.   Just look at the valuation of a software company vs. a services company in the marketplace.  Services companies are valued at less than 1 times earnings where software companies are valued at 3 or more times earnings.   The magic of software has always been you can build it once and sell it many times (an exponential growth model), but in the consulting world the main way to grow revenue is to add more warm bodies to the company (a very linear growth model).

Horizontal IP is above the line…

An interesting aspect of Horizontal IP is that it is sold vertically.   Companies and government do not buy Identity Management or Customer Relationship Management (CRM) products per se.  They do however buy solutions that require Identity Management and/or Customer Relationship Management engines.   This is primarily why horizontal IP is a higher cost of sale (COS).   The COS is not however as high as a vertical IP provider–why, because the engine is reusable on other applications the customer made need the engine for and they don’t have to buy it over and over again.

Any account manager working for a company that has a CRM product will tell you that they don’t try to sell the value of the their CRM product to IT… They do however sell scenarios to government agencies for example to track bad guys, Army recruits, 311 calls and security clearances.   The underlying CRM engine is just a tracking workflow development environment that comes along with the configuration code that will be built to track that specific scenario.

Services

There are many sources that say that for every dollar of software a customer buys they also spend greater than 10x that dollar in services.

The services spend per dollar of software equation increases the further up the value chain one goes…

With vertical IP there is business process reengineering (BPR) and possibly vertical application development to configure the solution specifically for the client.  There is also a need to implement some sort of “management” engine at the Horizontal IP level to support the Vertical IP.  Then there is also a need for updated databases, middleware, operating systems and hardware.   At all these levels there is a need for services.   Let’s take one of the earlier examples.  If an Intelligence agency were going to buy a solution to track security clearances they would need to hire people to understand the current process, make recommendations on the new process and train agencies on how to use the new solutions.  They would also have to develop the vertical application on top of any Horizontal IP CRM engine.   They would then have to hire people to install the Horizontal IP CRM engine.   If the CRM engine requires new databases, operating systems then people may have to be brought in at the platform IP level to consult there as well.

All in all, the premise is that the farther up the stack you go the more services that are required.